The government has added Rs14.9 trillion to the public debt during almost three years in power, which is equal to 140% of the total debt the previous Pakistan Muslim League-Nawaz (PML-N) government acquired in five years, shattering Prime Minister Imran Khan’s dream of reducing the burden.
According to the State Bank of Pakistan’s (SBP) annual debt bulletin, released on Monday, the public debt increased to Rs39.9 trillion by June this year, an addition of Rs14.9 trillion within three years.
The total public debt increased by a whopping 60% from July 2018 to June 2021, an unsustainable 20% increase on average each year.
The addition of Rs14.907 trillion to the public debt in just three years was equal to 82% of the gross public debt that the last two elected governments of Pakistan Peoples Party (2008-2013) and PML-N (2013-2018) had added in 10 years.
With the fresh addition from fiscal year 2018-19 to 2020-21, the total public debt as of June 30, 2021 increased to Rs39.9 trillion or 83.5% of the gross domestic product (GDP), the central bank reported.
However, in terms of the size of economy, the ratio was 4.1% less than the preceding fiscal year 2019-20. It was still higher by 11% of GDP than the level left behind by the PML-N and was also in violation of the Fiscal Responsibility and Debt Limitation Act of 2005.
The Pakistan Tehreek-e-Insaf (PTI) government added on an average Rs13.6 billion a day to the public debt, which was more than double the daily average addition of Rs5.8 billion by the PML-N government.
When the PML-N government completed its five-year term, the total public debt stood at Rs24.95 trillion, or equal to 72.5% of GDP. In just three years, it has surged to 83.5% of GDP, which is unsustainable and carries huge risks for the economy and the country’s foreign policy.
In February 2019, PM Khan had vowed to bring the public debt down to Rs20 trillion. He had been very critical of the economic policies followed by the previous PPP and PML-N governments and had set up the Debt Inquiry Commission to investigate the reasons behind the addition of Rs18 trillion to the debt stock in 10 years.
Despite completion of the inquiry, the premier has withheld the release of the report.
The accumulation of debt is a direct result of the gap between expenditures and revenues, which is widening due to the inelasticity of debt servicing and defence needs and the Federal Board of Revenue’s (FBR) failure to enhance revenue collection to a sustainable level.
Steep currency depreciation also contributed to the federal government’s debt.
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Pakistan’s total debt and liabilities also jumped to a record Rs47.8 trillion, an addition of Rs18 trillion in the past three fiscal years. The country’s total debt and liabilities were equal to 100.3% of GDP - a ratio that was 86.3% hardly three years ago.
Debt breakdown
The federal government’s total domestic debt increased to Rs26.2 trillion, an addition of Rs9.9 trillion or 60% in the last three fiscal years. At the end of the PML-N tenure, the domestic debt was Rs16.4 trillion.
The external debt of the federal government also increased 60% to Rs12.4 trillion in the last three fiscal years. There was a net increase of Rs4.6 trillion in the external debt, largely due to currency depreciation and building the foreign currency reserves through borrowing.
At the end of the PML-N tenure, the external debt had stood at Rs7.8 trillion.
The Rs12.4 trillion worth of external government debt does not include loans obtained for reserves building and currency swap arrangements. These loans are the responsibility of the central bank.
By June 2021 the rupee-dollar parity traded at Rs157.3 to a dollar. In June 2018, the value of the dollar was equal to Rs121.54, suggesting a massive depreciation of nearly Rs36 or 29.4%. The current parity is around Rs166.
Dollar-based total external debt
The total external debt and liabilities, which were $95.2 billion three years ago, jumped to a record $122.2 billion - an addition of $27 billion on the watch of the PTI government. In one year, the foreign debt rose by $9 billion. During the five year tenure of the PML-N, the total increase in the external debt was $34 billion.
The public external debt, which is the direct responsibility of the federal government, increased from $75.3 billion in June 2018 to $95.2 billion in June this year - an addition of $20 billion in three years.
The International Monetary Fund (IMF) debt that was $6.1 billion three years ago has jumped to $7.4 billion by June this year, according to the central bank.
The direct consequence of mounting debt pile is huge increase in the cost of debt servicing. In June 2018, the country spent a total $7.5 billion in external debt repayment and its servicing. This cost has now increased to $13.4 billion - a surge of 79% in three years. But repayments are made by signing new loans.
The country’s foreign exchange liabilities also increased by three-fourth, mainly because of the government’s decision to build foreign exchange reserves by taking new loans.
Published in The Express Tribune, August 31st, 2021.
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